What kind of financial advice do you actually need?

Figuring out what kind of financial advisor services you require can be a bit tricky these
days—particularly when there are so many different types of advisor titles floating around the
industry.

Not quite sure what I mean? Take the recent findings of a “Mystery Shopper” study on investment advice,
released by the Ontario Securities Commission (OSC), Investment Industry Regulatory Organization of
Canada (IIROC) and Mutual Fund Dealers Association of Canada (MFDA).

In 88 assessments, they encountered 48 different business titles used by financial advisors.

While the industry is old and ever evolving, that’s pretty pathetic. It’s simply long past due for
legislators and regulators to tighten up the use of all these titles. But, of course, that doesn’t mean
we can’t design a simple framework for cutting through the noise.

Imagine there are two main types of advisor services you can receive:

Investment advice, which is focused primarily on recommending, implementing and managing investments
in your portfolio.

As you can see, compared to investment advice, financial planning is a far more comprehensive process. It
involves getting to understand your goals, understanding where you stand financially today, and how to
get you to a point where your goals are realized. That should also include ongoing monitoring, review
and adjustment as necessary.

While the financial advice industry began life with an investment-centric view, segments of the industry
have been slowly evolving to a planning-centric view in response to a number of new and recent
developments: the rise of discount brokerages, ease of access to information on the internet, low-cost
index funds and robo-advisory services. Together, all of these variables have threatened the value of
pure investment advice.

Today, it’s now increasingly common for an investor to question why she should pay a 2.5% management
expense ratio (MER) to advisor if all they are doing is providing investment advice, especially when
that can be more or less replicated for 0.25% elsewhere

In the face of such public scrutiny, many financial advice providers have tried to stay relevant to
investors by getting slightly more competitive on costs and getting much more competitive on value. That
value takes the form of financial planning.

So, if you’re paying full-service costs and only getting investment advice in return, run (don’t
walk) to interview some new financial advisors. As an investor, it’s your responsibility to ensure that
your advisor is providing the services that you’re being charged for—just as it’s also your
responsibility to make sure your own behavioural biases aren’t dragging down your returns. We’ll learn
more about that in the
next instalment
of this series.

Originally published at
MoneySense.ca,
where you’ll discover more helpful information about financial advisors and planning.

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